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HomeMy WebLinkAbout09/08/2025 - Regular Minutes - City Council - Audit CommitteeMayor John Nichols Mayor Pro Tem Mark Smith City Manager Bryan C. Woods (trff" CITY OF COLLEGE STATION Home of Texas Ac M Uniuerrrty' Councilmembers William Wright David White Bob Yancy Melissa Mcllhaney Scott Schafer Minutes CITY COUNCIL AUDIT COMMITTEE IN -PERSON WITH TELECONFERENCE PARTICIPATION Monday, September 8, 2025, at 3:00 pm Audit Committee Members Present: John Nichols, Mayor Melissa Mcllhaney, Councilmember Mark Smith, Mayor Pro Tem Michelle McMillin, Committee Member Nicolo Logalbo, Committee Member (Arrived at 3:05 pm) City Staff: Ty Elliott, City Internal Auditor Matthew Ragaglia, Program Auditor Pey Zeigler, Former Internal Audit Intern Bryan Woods, City Manager (Absent) Jeff Capps, Deputy City Manager Jeff Kersten, Assistant City Manager Jennifer Prochazka, Assistant City Manager Adam Falco, City Attorney Mary Ellen Leonard, Fiscal Services Director Emily Fischer, Public Works Director 1. Ca11 meetine to order and Announce a Ouorum is Present. With a quorum present, the Audit Committee of College Station was called to order by Mayor Nichols at 3:00 pm on September 8, 2025, in the 1938 Executive Conference Room of the City of College Station City Hall. 2. Hear Visitors There were no hear visitors. 3. Agenda Items 3.1 Presentation, discussion, and possible action of minutes for the City Council Audit Committee meeting held on June 2, 2025. MOTION: Upon a motion made by Mayor Pro Tem Mark Smith and a second by Committee Member Michelle McMillin the Audit Committee voted four (4) for and zero (0) opposed to approve the June 2, 2025, Audit Committee minutes. The motion carried unanimously. 3.2 Presentation, discussion, and possible action on proposed revisions to Chapter 2, Administrations Article V, Finance, Division 1, Generally, Section 2-95, Creation of an Audit Committee, of the Code of Ordinances of the City of College Station. Ty Elliott explained that, following direction from the June 2, 2025 meeting, the audit function is transitioning from Generally Accepted Government Auditing Standards ("Yellow Book") to the Global Internal Audit Standards ("Red Book"). To comply with Red Book requirements for audit committee governance, the City ordinance will need to be revised and later approved by City Council. All proposed changes were shared with the City Manager's Office, Fiscal Services, and the City Attorney's Office for feedback, which has been addressed and incorporated into the draft presented to the Audit Committee. Mayor Nichols asked what specific changes were necessary to comply with Red Book. Ty Elliott responded that, unlike the Yellow Book, which emphasizes independence at the engagement level, the Red Book emphasizes organizational independence. As such, the ordinance must clearly define a governance structure that ensures the audit function reports directly to the audit committee in a manner that safeguards independence. Committee Member Melissa Mcllhaney asked whether the Audit Committee and City Council could receive a version of the proposed revisions with tracked changes. Ty Elliott confirmed that a tracked -changes version would be provided before the Council meeting. No further feedback was offered, but Ty Elliott encouraged committee members to share any additional input at any time. 3.3 Presentation, discussion, and possible action regarding an update on the progress of the Fiscal Year 2025 Audit Plan. The Audit Committee reviewed the FY25 Audit Plan progress. Eight projects have been completed to date, including the AP Audit, External Peer Review, HR Audit (FMLA), Roadway Maintenance Audit, Peer Review of the Audit Function, and a comprehensive follow-up report. The Drainage Utility Fund audit and the Roles and Permissions audit are scheduled to be presented at the December Committee meeting. Progress this year was impacted by an unexpected and lengthy external peer review conducted by the Association of Local Government Auditors (ALGA). Melissa Mcllhaney asked why this review required more time than usual. Ty Elliott explained that, in the last 15 years, only two ALGA peer reviews have resulted in failing grades, and he served on the review team for the most recent case. This required months of ongoing assistance, whereas peer reviews typically conclude within a few weeks. Ty confirmed that the City's next peer review is several years away, so similar disruptions are not expected next year. Committee Member Nicolo Logalbo requested clarification on agile auditing. Ty explained that this approach leverages specialized software to monitor key financial indicators in high -risk areas such as accounts payable, payroll, and accounts receivable. If monitoring identifies a spike in risk factors (e.g., a drastic rise in write-offs), the audit function can quickly seek Audit Committee approval to conduct a targeted, narrow -scope audit. This ensures that, despite limited resources, the audit function is still able to provide strong coverage of critical risks while remaining responsive to emerging issues. 3.4 Presentation, discussion, and possible action regarding the 2025 Citywide Risk Assessment. Ty Elliott presented the 2025 Citywide Risk Assessment, explaining that it serves as the foundation for developing future audit plans. He noted that from FY2014 through FY2025, 179 potential audit topics were identified, of which 73 were selected for audit and 58 were completed, representing a 79 percent completion rate. The City conducts a risk assessment every three to five years, and this is the sixth such assessment completed. For this cycle, the methodology included gathering input from each City Council member, reviewing Council meeting minutes and agenda items, interviewing senior leadership in the City Manager's Office, Human Resources, IT, and Finance, benchmarking against audit trends reported by the Association of Local Government Auditors and the Institute of Internal Auditors, and reviewing the results of prior assessments. This process produced a consolidated list of potential audit topics prioritized by likelihood, impact, and potential for meaningful recommendations. The assessment resulted in the identification of 12 potential audit topics and seven potential non - audit services for consideration. Based on these results, the Auditor's Office recommended that the FY26 Audit Plan include assurance engagements of Fleet Management, Capital Improvement Projects, and the Annual ERP Roles and Permissions audit, along with a non -audit service following up on the cybersecurity audit, and projects to transition the office to Red Book standards and to develop a scheduled auditing program. Mayor Nichols asked what tasks would be required for the transition to Red Book. Ty Elliott explained that the transition would involve creating a new audit charter, which would be presented to the Audit Committee at its December meeting, as well as developing updated forms, checklists, policies, and procedures to align with the Red Book framework. During discussion, Committee Member Melissa Mcllhaney asked about Fleet Management and whether an audit would evaluate if insourcing or outsourcing vehicle maintenance would better benefit the City. Ty Elliott explained that this could be a potential audit objective; however, the scope and objectives of each audit are determined after conducting a risk assessment at the engagement level. He added that Fleet Management audits could also cover utilization, preventive maintenance, and replacement planning, depending on what risks are identified at the time. Melissa Mcllhaney also asked about auditing Tourism Funding and Operations, noting that her primary concern was the transparency of tourism data, particularly the accuracy and validity of the analytics used. Ty Elliott explained that this is an auditable area; however, the success of the audit would depend on the quality and reliability of the data available. He further noted that tourism audits are more difficult than operational audits like fleet management because of the challenges in measuring performance and return on investment. He referenced a prior audit of the Convention and Visitors Bureau that showed how difficult it can be to attribute outcomes solely to City -funded efforts versus outside factors. Mayor Nichols noted that because the Citywide Risk Assessment will guide audit planning for the next three to five years, there is no need to rush adding additional items to this year's plan. He emphasized that, with the exception of any new emerging risks that may arise, the identified audit topics would remain available for consideration in future years. There were no comments or requested revisions to the recommended FY26 Audit Plan. 3.5 Presentation, discussion, and possible action regarding audit selection for the Fiscal Year 2026 Audit Plan. MOTION: Upon a motion made by Mayor Pro Tem Mark Smith and a second by Committee Member Nicolo Logalbo the Audit Committee voted five (5) for and zero (0) opposed to approve the proposed Fiscal Year 2026 Audit Plan. The plan consists of assurance engagements of Fleet Management, Capital Improvement Projects, and the Annual ERP Roles and Permissions audit, along with a non - audit service to follow up on the cybersecurity audit, and projects to transition the office to Red Book standards and to develop a scheduled auditing program. 3.6 Presentation, discussion, and possible action regarding the Audit of the Roadway Maintenance Fee. Ty Elliott presented the results of the audit of the Roadway Maintenance Fee, which focused on two primary areas: (1) whether the fee complies with the legal standards required for it to be classified as a fee rather than a tax, and (2) whether the City is accurately assessing and billing the fee. The four legal standards require that the fee: (1) avoids subsidizing unrelated activities, (2) serves a legitimate public purpose, (3) recovers only the cost of providing the service, and (4) is paid in exchange for a specific, discretionary benefit. To validate compliance with these standards, the audit reviewed how direct and indirect costs are allocated to ensure that fee revenues are used only for roadway purposes. A statistical sample of transactions was tested, and all charges were found to be in compliance with the City ordinance and best practices. The appeals process was also reviewed and determined to be adequately designed; however, auditors noted that limited public awareness reduces its effectiveness as an internal control to identify errors in fee assessments. In practice, appeals have been rare, with only 21 filed out of more than 50,000 accounts over the past eight years. In addition, a statistical sample of 282 commercial service points was tested to evaluate billing accuracy. This review identified a 23 percent error rate in tier assignments, with an estimated net financial impact of $34,000 to $52,000 in undercharges, which was not considered material to the overall fund. Taken together, this work confirmed that the City is applying all four legal principles in the administration of the Roadway Maintenance Fee. During discussion, Michelle McMillin asked about customer refunds when billing errors are discovered. Ty Elliott explained that the ordinance limits refunds to the six months prior to a customer's appeal of their fee, and that overall the City Manager's Office will determine how such situations are handled. MOTION: Upon a motion made by Mayor John Nichols and a second by Mayor Pro Tem Mark Smith the Audit Committee voted five (5) for and zero (0) opposed to accept the Audit of the Roadway Maintenance Fee. 4. Discussion and possible action on future agenda items. There were no future agenda items discussed. 5. Adiourn. There being no further business, the Mayor adjourned the meeting at 4:12 pm on Monday, September 8, 2025. ATTEST: Kimberly A.jickey, Records M gement Administrator Nichols, Mayor